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This report was commissioned by SABIP and published by the UKIPO in October 2010. It details the results of online and telephone surveys as well as reviews of patent and registered design cases between 2003 to 2009. A total of 1,858 small firms were contacted and over 80% rated IP as important to their business. Approximately 25% of the firms had been involved in an IP dispute in the past 5 years. However, 75% of firms did not have insurance to help meets the costs of IP disputes stating high costs as the main reason.

The IP disputes were as likely to be with firms of a similar or smaller size as they were to involve larger firms. An exchange of letters between solicitors was by far the most common solution tried, resolving the dispute in approximately 40% of cases. High level negotiation between firms was used in a third of the cases, but other methods such as mediation, use of the UK-IPO, small claims or county courts were rarely used. Only 13% of disputes ended up in the High Court. A significant proportion of listed patent cases - approximately 50% - involved UK vs foreign firms and settlement occurred in about 40% before trial. Whilst SMEs and larger companies had similar success rates, micro firms had a marginally lower success rate, especially if the micro firm was a claimant. Micro firms were also more likely to settle before trial.

The research was complemented by a series of interviews with a selection of managers who had replied to the surveys.

The key points highlighted were:

Costs deter enforcement: The financial costs of IP litigation, and in particular the costs of professional advice, were mentioned as a significant deterrent to litigation. A small number of interviewees said that they had effectively stopped enforcing their IPRs because of the costs involved.

Reputation and R&D impacts: Damage to reputation and the commercial costs of failure are further risks of litigation, as well as time taken up by senior management and R&D personnel.

Overseas enforcement is unaffordable: Managers often stated that using IPRs to prevent infringement overseas was even more costly than UK litigation and often beyond their resources. Some interviewees speculated on possible forms of government support in IP enforcement, either through legal aid or via improved systems of communication and advice for smaller firms.

The interviews confirmed the survey findings that, for smaller firms, IP disputes rarely end up in court, yet IP disputes are relatively common. Some smaller firms interviewed found that they could protect their IP simply and at low cost. At the other extreme, some firms faced crippling litigation costs when enforcing their rights, in addition to the risk of losing the IPR itself. There was little evidence of a middle way. IP enforcement appears to consist of either small scale, easily resolved disputes, or lengthy, expensive and high-risk litigation.

Implications of IP Enforcement Procedures

The report concludes that in seeking to balance the ability to enforce IP rights across firms of different sizes, there is a need to do so in ways that do not add significantly to the social costs of enforcement. If too many costs are incurred as a result of grants to smaller firms, society may end up subsidizing an excess of litigation. An alternative policy would be to have cheaper enforcement procedures that are attractive to smaller firms. A key finding of the survey was the very limited use of arbitration or mediation and opinions sought from the UKIPO on patents. In addition, where litigation occurred it was predominantly pursued through the High Court rather than the County Courts. Encouragement for smaller firms to use such less expensive procedures might also be accompanied by advice and information to smaller firms on how to view their IP strategically, so that it becomes a better means of extracting value from their inventions, rather than merely a means of protecting them from infringement.